Goody's Family Clothing creditors' committee objects to DIP facility, claims it favors pre-petition lenders

By Jennifer Lanning Drey

Portland, Ore., July 11 - Goody's Family Clothing, Inc.'s official committee of unsecured creditors objected to the company's motion for final approval to obtain $210 million in debtor-in-possession financing, according to a Friday filing with the U.S. Bankruptcy Court for the District of Delaware.

According to the filing, the DIP financing would enable pre-petition lender The CIT Group/Business Credit Inc.'s outstanding debt to be paid in full and pre-petition lender Gordon Brother Merchant Partners, LP's outstanding debt to be rolled up into post-petition debt.

The committee said its biggest concern is that the DIP facility is being used as part of an overall strategy by some of Goody's pre-petition lenders to enhance their collateral position and charge the estate additional fees.

Meanwhile, the funding is only sufficient to support operations through a fall 2008 liquidation, they said.

Due to the timing, the creditors alleged that the funding was being used to allow Goody's largest shareholder, Prentice Capital Management, LP, to take the summer to decide whether it wants to make a further investment to support a reorganization or "cut the bait with Goody's in time to preserve and dispose of the pre-petition lenders' enhanced collateral during the most profitable time of the year - the holiday shopping season."

The committee also believes the costs associated with the DIP facility are "extraordinary."

As previously reported, Goody's was granted interim access to the DIP financing on June 11.

The financing includes a $175 million revolving credit facility from General Electric Capital Corp., $15 million in DIP financing under a term loan facility from GB Merchant Partners, LLC and $20 million in DIP financing under a junior term loan facility from PGDYS Lending LLC.

The hearing for final DIP approval is scheduled for July 15.

Goody's, a Knoxville, Tenn., family apparel retailer operating in small- to mid-size markets primarily in the Southeast, filed for bankruptcy on June 9. Its Chapter 11 case number is 08-11133.

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